Bengaluru - Ujjivan Small Finance Bank on Monday launched the official operation of its services with five pilot branches, aiming to become a leading mass market retail bank over the next five years by catering to the unserved and under-served customers.

Ujjivan Financial Services, a non-banking financial company which is the holding company of the small finance bank, was among the 10 entities that received license from RBI late last year to commence small finance banking operations.

Representational image. Reuters

"With a customer base of 35 lakh people, we are now focusing on the under-served. In the last two years, we have done a lot of market research. There is a huge gap in market potential. We want to grow as a major player in retail banking in next five years," said Samit Ghosh, MD and CEO, Ujjivan Small Finance Bank, at the launch.

The bank will offer full range of services with benefits of doorstep and paperless banking, besides internet and phone banking, biometric ATMs as well as Aadhaar-linked debit card, it said.

Ujjivan Small Finance Bank will offer interest rates on fixed deposit and recurring deposit in the range of 5.5-8 percent, which is higher than the average rate of interest offered by most banks, the bank said in a statement.

There will also be an additional benefit of 0.5 percentage points for senior citizens. The bank will offer interest rates of 4 percent on savings accounts.

Speaking to reporters, Ghosh said the small finance banking sector will recover in the next six months from the impact of demonetisation which had hit the livelihood of customers from the unorganised sector in different ways.

"More number of Micro Finance customers come from the unorganised sector, and their livelihood has been impacted in different ways during demonetisation period. To recover from this impact, it will take six months," he said.

Ghosh said the repayment rate has recovered from 90 percent to 97 percent of whatever was due in November, as the customers belonging to unorganised sector, who were hit by demonetisation have started to repay the loans.

Asked to comment on industry watchers views on the survival of small finance banks compared to others who could upgrade themselves to universal banks, Ghosh said some may not survive but it is very difficult to predict how many would fade away.

But Ujjivan's aim is not to become a universal bank such as Axis or HDFC banks because that market is already competitive and boast of sufficient number of clients, he said.

"If you look at the history of some such banks, they all merged with other banks, but right now, I may not be able to predict on merging aspect," he added.

Ghosh said the small finance banks will start off well because they have their business in place compared to the payment banks, who have had a bad beginning with three out of the 11 licensees dropped out of the business.

On industry watchers fear that the small financial banks will focus more on the overbanked urban customers than the rural pockets where the bank credit is still a scarce commodity, he said it is untrue to claim that urban pockets are overbanked.

"Our objective is not serve the urban middle class segment, however there is urban environments which are still unserved and under-served, and we are going to tap them - that is our objective and commitment to given to the Reserve Bank of India," he added.

The bank has a loan portfolio of Rs 6,525 crore as on date. It will extend its services across 457 branches in 24 states in a phased manner over the next few months.

The bank will offer customers unlimited transactions from its own ATM network and a total of six free transactions on other bank ATM networks.

It will also offer remittance services to transfer money within Ujjivan and other bank accounts in an affordable manner.

Ghosh said the SFB has 10,000 head count, including 2,000 new recruits with banking background.

Ujjivan SFB is also aiming to tap into the estimated Rs 5 lakh crore upwards unorganized segment (like chit funds, cooperative credit societies, flybynight operators) where currently the bottom of the pyramid, low income group puts their hard earned savings, he said.